Objectives of economic management

• Governments can choose to pursue a range of policy goals, and often the priorities of government policy shift over time.
• major objectives of economic management are described in 3 ways:
  ?
• Economic growth:
  • increased production of goods/services → more wants met → raises living standards
• Internal balance:
  • pursuing price stability (low inflation), and full employment
• External balance:
  • to keep sustainable: (CAD, Foreign Liabilities, ER)

Economic growth and quality of life

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• Sustainable growth is an economic objective

  • as unrestrained growth compromises other objectives

• Sustainable growth increases quality of life through +GNI per capita (used to measure eco development)

  • means eco growth increases people’s access to goods/services, raising living standards

• Also: Higher incomes → higher taxation to fund public goods

  • to support general welfare

• Quality of life refers to :: the overall wellbeing of individuals within a country according to their material living standards and a range of other indicators, such as education levels, environmental quality and health standards.

Full employment

• Full employment (objective) involves : full use of all resources in an economy (land, labour, capital, enterprise)

  • but generally focused on full use of labour.

• Full employment means that an economy is at its non-accelerating inflation rate of unemployment (NAIRU)

  • this is, the rate where there is no cyclical unemployment

• The gov can aim to lower the NAIRU through microeconomic reform

  • → minimises the structurally unemployed in the long-term
  • and increasing the supply of the labour force

• The benefits of Full employment

  • max production, minimum prices → + living standards
  • prevents negative economic & social effects of unemployment.

Price stability

• involves the monitoring of inflation to ensure general prices are at an acceptable level (minimal disruption to economy)
• The Australian Gov uses primarily monetary policy to control inflation
  • setting the inflation target at 2-3%
  • → avoids negative effects of high inflation, ensures consumers maintain purchasing power
    • → supports AD and eco growth

External stability

• involves meeting long-term foreign financial obligations so that internal goals are not jeopardised.

• The objective of external stability is often a constraint on internal government objectives

  • e.g. high CAD → may decrease foreign investment (& confidence)
    • → constraining economic growth (internal objective)

• common measures of external stability:

  • sustainable current account balance on the BoP
  • Net foreign debt as a percentage of GDP
  • Terms of trade
  • Exchange rate
  • International competitiveness

Ch 13.2 review Qs

• TODO eco 13.2 review questions 🔼 📅 2024-06-18

️1 Describe the Government’s economic objectives of internal stability and
economic growth.
2 Discuss how effective you believe the Australian Government has been in
achieving external stability in recent years. Has this goal conflicted with other
economic objectives?

NOT IN TRIALS VV

Environmental sustainability

Distribution of income